How Should Justice Distribute $4 Billion To Harmed Homeowners?

The Justice Department is negotiating a multibillion-dollar settlement with JPMorgan over its handling of mortgage-related securities during the financial crisis. The deal could be announced this week, and it reportedly includes $4 billion set aside for homeowners who lost substantial value on their homes. NPR's Yuki Noguchi reports on lessons learned from the payout of similar settlements.

YUKI NOGUCHI, BYLINE: The focus often lies on the size of any given settlement but experts say figuring out how to distribute restitution to victims - in this case, struggling homeowners - is often the bigger deal.

Kenneth Feinberg has encountered this kind of challenge again and again. He administered the September 11th Victim Compensation Fund, the BP-Deepwater Horizon compensation fund, and most recently, the donations for the victims of the Boston Marathon bombings.

KENNETH FEINBERG: I can tell you that in all of these settlements that I've handled, the same checklist of items come up.

NOGUCHI: He says the list includes who's eligible, what they must provide as proof, and what the formula is for determining who gets how much.

FEINBERG: The next issue is making sure that the process is very transparent.

NOGUCHI: Feinberg says transparency is also important in the appeals process for those who have complaints. And he says none of that matters unless another criterion is met.

FEINBERG: Get the money out fast.

NOGUCHI: By that measure, last year's $25 billion settlement between state attorneys general and five major banks might be considered a success. That case settled the so-called robo-signing scandal, where banks used shortcuts in paperwork to push through foreclosures.

JOSEPH SMITH: The average benefit to borrowers was $79,742.

NOGUCHI: Joseph Smith is the independent monitor overseeing that settlement. He says as of last year, $19 billion worth of loans were forgiven or refinanced, benefiting nearly half a million homeowners, all ahead of schedule. That's good, Smith says, but it's not everything.

SMITH: Even though $19 billion is a large number, it was nowhere near the number necessary to deal with the huge need in the marketplace.

NOGUCHI: Smith says, in particular, he wished the settlement permitted him to collect more data about who benefited from the money and to track whether the remedies allowed people to stay in their homes over time. And, of course, not everyone is satisfied.

SMITH: I hear if they don't think it went well.

(LAUGHTER)

SMITH: I don't hear from people about a lot of success stories. I think there are a lot.

NOGUCHI: California negotiated a separate settlement in addition to the national one Smith monitored. Katherine Porter was appointed to oversee the state's agreement and says banks there delivered 50 percent more money to homeowners than the settlement laid out. Why? Porter says because it gave banks flexibility and kept the paperwork simple.

KATHERINE PORTER: Banks had some freedom to choose and design different tools. And we saw some very novel programs from certain financial institutions that had very, very high participation rates.

NOGUCHI: Programs that, for example, automatically forgave loans unless the homeowner proactively objected, or that allowed homeowners to refinance by filling out a single page of information. In other words, plans that made it easy for some 150,000 homeowners in California to qualify for the money.

PORTER: And it put the burden on the banks. Here's your dollar target. You figure out how to get there. As opposed to saying to the consumer, here's this help, you figure out how to access it.

NOGUCHI: But Kenneth Feinberg, the administrator of the September 11th funds, cautions that even successful settlements cannot right wrongs.

FEINBERG: People get very, very emotional when they've suffered damage and there's an expectation of compensation. It's natural. It's human nature.

NOGUCHI: In every case, he says, money falls short.

FEINBERG: It isn't fair, and it isn't just. And those words shouldn't be used. I avoid words like that because I think that is overselling the limited ability of money to temper emotional frustration, anger and disappointment.